News & Commentaries by Ron Robins
Investors are driving increased adoption of ESG policies, report finds. “Institutional investors are increasingly demanding that private equity firms adopt ESG policies in their investment processes, according to new research conducted by the London Business School′s Coller Institute of Private Equity and supported by Adveq, the private equity investor. The study, based on responses from 42 private equity firms with collective assets under management of more than $640 billion, reveals that ESG is now a core value creation strategy at private equity firms.”
[COMMENTARY] To me, what’s most interesting about this study’s findings relate to ESG moving out of the compliance and risk mitigation area in private equity and into it being seen as a value creation formulae used throughout their management organizations. ESG analysis is being inherently recognized for providing an opportunity to increase returns.
Growing pressure from LPs moves ESG from a compliance function to the heart of the investment process, February 23, 2015, London Business School, UK.
Young investors aim to make money responsibly. “’Anyone (who) has strong spiritual or religious beliefs would not want to see their investment support activities that are against those beliefs,’ he said. ’I don′t give advice on what they should buy. What I do in a very general way is help them assess their personal values and then apply them to investments.’”
[COMMENTARY] That’s a quote from me in an excellent article that also extensively quotes Dustyn Lanz, director of research and communications at the Responsible Investment Association of Canada. This is a good article to introduce the subject of ethical-responsible investing to those beginning to think about the subject, no matter their age.”
Young investors aim to make money responsibly, by Ruane Remy, February 21, 2015, The Catholic Register, Canada.
Global RI (responsible investing) assets grew 61% from 2012 to 2014 to reach $ 21.4 trillion. “Assets employing RI strategies have risen from 21.5 percent to 30.2 percent of the professionally management assets across in the regions covered… The majority of the identified global RI assets discussed in the Review— 64% —are in Europe. Together, Europe, the United States and Canada account for 99% of global RI assets identified in the Review.”
[COMMENTARY] This is terrific growth! The report finds that negative/exclusionary screening is still the most used aspect of RI, followed by ESG analysis and corporate engagement and shareholder actions. Europe — as in the adoption of CSR by companies — still leads!
Global RI assets grew 61% from 2012 to 2014 to reach $ 21.4 trillion, press release, February 24, 2015, Responsible Investment Association, Canada.
Hospitality workers name responsible, irresponsible private equity managers. “UNITE HERE, the union of hospitality workers throughout North America, is for the first time releasing its List of Responsible and Irresponsible Private Equity Managers in the Hospitality Industry (below) to help staff and trustees of pension funds and other institutional investors make smart decisions… [leading] the Responsible list is Blackstone Group LP; [leading] the Irresponsible list is Dallas-based Lone Star Funds.”
[COMMENTARY] UNITE HERE is perhaps paving the way for other unions to offer their best and worst companies to work for. Actually, I believe such information would be useful for ethical investors, the ’rated’ companies, and markets generally. So I hope that other unions come out of their shells and provide similar information!
UNITE HERE: Hospitality workers name responsible, irresponsible private equity managers, press release, February 18, 2015, UNITE HERE, USA.
New White Paper from Breckinridge Capital Advisors Examines the Value of Corporate Bond ESG Analysis. “Breckinridge Capital Advisors, a Boston-based high-grade fixed income manager with over $20 billion under management, has released a new white paper that examines its environmental, social and governance “ESG” analysis efforts on corporate bond investments. Breckinridge’s white paper findings include:
1) Integrating ESG into its research process has been additive to its efforts to mitigate and appropriately price risk; 2) ESG analysis exhibits a low positive correlation with credit agency ratings; 3) ESG research is enhanced through engagement calls with corporate borrowers; 4) A company that works to manage its material ESG risks may be a more stable credit and a better investment.”
[COMMENTARY] In short, Breckenridge finds ESG analysis is helpful in assessing bond risks and motivating issuers to higher ESG standards. For those managing or investing in fixed income assets, this is a most helpful paper. Downloadhere.
New White Paper from Breckinridge Capital Advisors Examines the Value of Corporate Bond ESG Analysis, press release, February 11, 2015, Breckinridge Capital Advisors, USA.
New global ’ratings agency’ ranks the 500 institutions with power to end deforestation by 2020. “The Global Canopy Programme has identified, assessed and ranked 250 companies, with total annual revenues in excess of US $4.5 trillion; 150 investors and lenders; 50 countries and regions; and 50 other influential actors in this space. Together, these 500 control the complex global supply chains of key ’forest risk commodities’ such as soya, palm oil, beef, leather, timber, pulp and paper that have an annual trade value of more than US $ 100 billion and are found in over 50% of packaged products in supermarkets.
Assessed against dozens of policy indicators, only seven of the Forest 500 scored the maximum number of points – companies Groupe Danone (France), Kao Corp. (Japan), Nestle S. A. (Switzerland), Procter & Gamble (US) and Reckitt Benckiser Group (UK), Unilever (UK) and banking and financial services giant HSBC (UK).”
[COMMENTARY] Many ethical investors will be interested in these findings. However, some of the ’better’ companies cited in this study do have other ESG issues. For instance, Nestle’s promotion of baby formula over breast-feeding has angered many, while HSBC legal woes continue with the latest being possible criminal charges for allegedly helping US clients evade taxes.
New global ’ratings agency’ ranks the 500 institutions with power to end deforestation by 2020, press release, February 11, 2015, Global Canopy Programme, UK.
Japanese automotive companies take the lead in new CDP auto league.“This research focuses on the [environmental] regulation in the EU, US and China with the ranked companies, which responded to CDP’s questionnaire, accounting for around 83% of the global auto market by sales volume… General Motors and FCA risk significant penalties in both the EU and US potentially equating to US$1.7bn (33% of EBIT) and US$574m (15% of EBIT) respectively. Ford is also at risk of a penalty in the US of US$889m (or 16% of EBIT).”
[COMMENTARY] This is a fascinating analysis of how prepared auto companies are for the regulatory environment in the near future. American companies are generally the least prepared and could suffer financially as a consequence. No doubt many ethical investors will want to consider the CDP analysis in their investing decisions. This is the first of many such reviews of different industries that CDP (formerly the Carbon Disclosures Project) is undertaking.
Japanese automotive companies take the lead in new CDP auto league, press release, February 5, 2015, CDP, UK.
RepRisk Releases Report on Most Controversial Companies of 2014. “Six out of the ten most controversial companies of 2014 are located in Asia and three are based in the United States.”
[COMMENTARY] Uber, GM and the exclusive Neiman Marcus Group department store chain are #5, 8 and 10 respectively, on the list. Uber’s problems included assaults by drivers on passengers; GM had to recall 30 million cars due to defects; and Neiman Marcus had a major data privacy breach plus allegations of child labor among its suppliers. There were other serious ESG issues with each of these and the other companies listed.
RepRisk Releases Report on Most Controversial Companies of 2014, report, February 4, 2015, Switzerland.
Health sector should divest from fossil fuels, medical groups say.“The health sector should get rid of its fossil fuel investments on moral grounds, as it previously did with its tobacco investments, according to a report by a coalition of medical organisations… The members of the British Medical Association have already voted to divest from fossil fuels, the first health organisation in the world to do so.”
[COMMENTARY] How soon will fossil fuel companies be held in the same esteem as tobacco companies? Those invested in fossil fuel entities will have to keep a close eye on such developments. Presently, many investors are excited that potential lows have been seen in the oil price and that as the price moves higher there’ll be big financial gains in related investments. However, for long-term gains, both ethically and financially, fossil fuel investments remain fraught with danger.
Health sector should divest from fossil fuels, medical groups say, by Damian Carrington, February 4, 2015, The Guardian, UK.
Growing ESG Investment Leading to Transformation of Japanese Companies. “Japanese companies are currently experiencing revolutionary upheaval in the field of CSR activities. This social earthquake comes from major changes in the public expectations of companies. Society is urging companies to make clear statements or disclosures of their efforts to create long-term value and sustainable development… In December 2014, the Tokyo Stock Exchange and the Financial Service Agency jointly released a draft of the Corporate Governance Code.”
[COMMENTARY] Clearly, the global momentum towards greater CSR/ESG disclosure gathers apace. When individuals go unpunished for misdeeds that result in enormous financial losses and human suffering (for instance, today, S&P getting only fined for their MBS ratings shenanigans that in part nearly brought-down the financial system), businesses have to be more proactive in their CSR/ESG efforts.
Growing ESG Investment Leading to Transformation of Japanese Companies, by Toshihiko Goto, January 28, 2015, Japan for Sustainability, Japan.
Institutional Investors Demand SRI/ESG Mandates. “US asset managers are receiving more requests for socially responsible investing (SRI) and environmental, social, governance (ESG) mandates from institutional clients, according to new research from global analytics firm, Cerulli Associates. More than 50% of asset managers surveyed by Cerulli said they had received institutional client requests for SRI or ESG mandates.”
[COMMENTARY] Finally, the word is getting out to asset managers that SRI/ESG mandates might improve returns! This is one main reason for such interest in these mandates. But it’s also great to see that clients want this for a myriad other positive reasons as well. These demands will force all companies to be increasingly more proactive on ESG matters. And that’s what we all want.
Institutional Investors Demand SRI/ESG Mandates, February 2, 2015, Funds Europe, UK.
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